Report finds quarter of market content with SEF rules

Over half of market participants believe the swaps market
will contract through a reduction in notional outstanding because of flow
moving to swap execution facilities (SEFs), a report by consultancy TABB Group
has revealed.

The report shows the industry is growing less confident that
the introduction of SEFs to facilitate swaps trading will have a positive
impact on the market.

The findings were based on surveys TABB has conducted in
2011 and 2013, which shows 56% of respondents think SEFs will decrease notional
outstanding in the swaps market, compared to only 29% in 2011. In 2013, 32%
said SEFs would increase notional outstanding, compared to 53% in 2011.

Earlier this year, the Commodity Futures Trading Commission,
the US regulatory body that has taken the lead role in reforming the swaps
market, released its final SEF rules, which has lead to four market operators
applying for SEF status.

However, the TABB report shows only a quarter of market
participants believe the Commodity Futures Trading Commission (CFTC) has crafted
adequate rules for SEFs. Some 26% of survey respondents registered disapproval
with the SEFs rules, and many respondents cited an expected dip in liquidity because
of greater transparency requirements when trading on SEFs.

Radi Khasawneh, TABB research analyst and co-author of
the report, titled ‘SEF Industry Barometer: Summer 2013’, said the fact
SEF rules had been finalised was broadly positive, with SEF registrants showing
a willingness to begin trading activities as soon as possible.

“Over the coming months, we expect to discover ‘where
the rubber meets the road’ of reform, specifically, which models will gain
traction,” Khasawneh said.